The Way Forward Mikael Lilius President and CEO Capital Markets Day

Transcription

1 The Way Forward Mikael Lilius President and CEO Capital Markets Day June 17, 2004

2 Fortum's strategy Fortum focuses on the Nordic energy market as a platform for long-term profitable growth Create the leading power and heat company Become the energy supplier of choice Strengthen position as the leading clean fuels refining company Excel in business performance 2

3 Consistent delivery of strategy Restructuring worth 9 billion Strengthened position in the Nordic market increased share of hydro generation strengthened position in electricity distribution and retail foothold in Norway and NW Russia Disposal of non-core businesses power and heat businesses outside Nordic focus market power plant and transmission engineering businesses gas retail and trading businesses oil exploration and production 3

4 Strong presence in chosen markets Population in key geographical markets Million

5 Becoming the leading Nordic energy company Power and Heat #1 #1 Heat Oil Clean fuels refining Distribution Wholesale* #2 #2 Sales of electricity Sales of heating oil Power generation 5 * One of the two biggest wholesalers

6 Financial performance

7 Strong financial track record Earnings per share EUR CAGR: 22 % Operating profit EUR million CAGR: 19% 1,289 1,420 1, LTM LTM LTM = 1 April March

8 Strong financial track record, cont'd ROE % ROCE % Target 12% LTM LTM LTM = 1 April March

9 Strong financing capacity Gearing 1 % Target 100% Q1/04 1. Gearing (%) defined as interest-bearing net debt / (shareholder s equity + minority interests). 2. The minority interest related to the preference shares amounting to EUR 1.2 billion and carrying fixed income dividend of 6.7 percent, issued by Fortum Capital Ltd, is treated as interest-bearing debt in

10 Good dividend payer Dividend per share EUR Consistent increase in dividends paid Dividend policy to be reviewed after completion of Oil separation

11 The way forward

12 Continuing on a high performance track Structural development Customer value management Improving operational efficiency 12

13 Towards an open European power market Ongoing market liberalisation Market-based development Increased competition To enhance industry efficiency capital supply-demand balance use of natural resources For the benefit of customers and society 1990 Fully liberalised Deregulation on-going Slow progress industry all users

14 The European liberalisation and integration process Now: Opening of national markets implementation of current directives in all EU countries Goal: Integration the future European market operates as one open market 14

15 The Nordic market a forerunner Nordic market GB/IRL market (2005?) Baltic market (2008?) E. European market ( ?) W. European market ( ?) Italian zonal market (2004?) SE Europe market ( ?) Iberian market (2005?) * European Commission strategy paper 2003 The Nordic market is the only regional integrated market in the EU today transmission capacity available for the whole market, some internal restrictions, however liquid power exchange for spot and financial trade 15

16 A functioning market Nordic grid - infrastructure available for the whole region Nord Pool - a liquid power exchange Nordic transmission March 22, 2004 at a.m. MWh/h Energy balance (+ import, - export) Transmission MWh/h TWh * In addition OTC clearing 1748 TWh/2001, 2055 TWh/2002 and 1192 TWh/2003 Source: Nord Pool Spot trade Derivatives trade* Members TWh TWh 545 TWh Members Source: Nord Pool 16

17 Today only limited interconnection capacity Regional integrated market with limited import capacities 17 TWh net power imports to the Nordic countries in 2003 Power flows to and from the Nordic market GWh, only ~5% of Nordic demand can currently be met by imports due to limited interconnection capacity 11,500 3,600 4, ,200 2,600 Source: Nord Pool, Finergy 17

18 New capacity will be required TWh/a Nordic supply and demand Demand In order to ensure long term supply security highest efficiency Price signals are necessary E 2020E renewables Hydro Wind Peat Coal Nuclear Other Oil Natural gas Source: Europrog / Finergy 18

19 Price signals guide new base load capacity investments /MWh Forwards June 4, 2004 Investments are made on rational financial basis New capacity requires a long term price of /MWh Price signals are necessary for generators decisions on new capacity

20 Power market integration also means price convergence Rolling annual average price EUR/MWh EUR/MWh Integration of the Nordic hydro system to the European thermal system Holland Spot APX Germany Spot EEX NP System UK Spot Spain Spot 20

21 Increasing trend in German futures Futures June 7, 2004 EUR/MWh German EEX Futures Nord Pool Futures

22 Emissions trading proceeds Increasing speculations on the ratification of the Kyoto protocol by Russia however, the importance of the Kyoto process has diminished as the EU institutions approved the idea of decoupling the use of global (Kyoto) trading mechanisms in the EU trading Implementation of the Emissions Trading Directive is proceeding the EU level legislative framework is in place for years and there are indications on what may follow in (Kyoto period) - no concrete decisions on the time after that generous national allocation plans (NAPs) - market likely not very short resulting in price levels possibly lower than expected energy sector will be the main contributor to the reductions big uncertainties on the process will remain for some time Within the power sector, the changes of operational costs will depend on fuels and technology, on the need to buy allowances and on the price level of allowances 22

23 Fortum is well-positioned Carbon exposure power companies kgco 2 /MWh, Large share of hydro and nuclear production Organisational capability for CO 2 trading in place DEI Scottish Drax ESB Elkraft RWE Union Fenosa EDP Edison ENEL Endesa Vattenfall Electrabel PVO Scottish& Southern E.ON Iberdrola Verbund Fortum British Energy Statkraft EDF

24 Outlook on regulatory framework Further harmonisation in the Nordic market will support the agreed EU power sector liberalisation and integration development development of the market infrastructure i.e. Nordic TSO (Transmission System Operator) and transmission grid market-based peak-load capacity development distribution regulation 24

25 European oil industry is facing changes Industry consolidation and privatisation will continue New environmental requirements Transition from gasoline to sulfur-free diesel in traffic fuels Refinery upgrades to meet upcoming product specifications Murmansk New export terminal planned St.Petersburg Enlarging Primorsk harbor Kirishi refinery upgrade Mazeikiai Majority owned by Yukos Planned refinery upgrade 25

26 Increasing importance of Russian crude Transportation flows Mt/a Historical Now Declining North Sea production Increasing volumes of crude oil and feedstocks from Russia

27 Structural development is key to retaining a shaper position Power & Heat, Markets Consolidation will continue Proactive moves will be required for retaining a leadership position Structural development is a main growth engine and a means to shape the portfolio Maintain the Nordic focus Pursue the value creative consolidator and shaper role Capture the Russian growth opportunity Oil Successfully complete the IPO 27

28 The Nordic home market is large on a European level others 5 largest actors others 363 TWh Fortum Vattenfall others 370 TWh others 545 TWh 5 largest actors Elsam E.ON Statkraft largest actor 536 TWh Generation Nordic 2003, other 2002 figures Source: Fortum, company data 28

29 Further consolidation is expected others Top 5 players market share, 2003 Generation 363 TWh 44% Fortum Vattenfall E.ON Distribution 14 million customers others 68% Fortum Vattenfall E.ON Nesa Hafslund Retail 14 million customers others 64% Fortum Vattenfall E.ON Nesa Hafslund Elsam Statkraft Number of companies, 2002 >350 companies ~550 companies >450 companies Finland Sweden Denmark Norway Source: Fortum, company data 29

30 Russia is an emerging opportunity Power and heat sector reform Strong growth potential Need for investments Low valuations Efficiency improvement potential 30

31 Lenenergo a strong foothold in NW Russia Population in key geographical markets Million Largest utility in northwestern Russia 10 thermal and 6 hydro plants Power generation capacity ~ 3,250 MW Fortum s share 21% 31

32 Our businesses will have better opportunities independently Oil separation and listing will Enable Fortum to further increase its focus on its Nordic utility strategy Allow Fortum s oil business to take full advantage of attractive market developments 32

33 Separation of Fortum Oil Fortum Corporation Fortum Power and Heat Oy Fortum Oil and Gas Oy Shares to be sold Remains in Fortum Group NewCo Fortum Markets (electricity customers) Heat companies Gas companies including Gasum and Nova Naturgas Certain other non-oil related assets/activities 33 Porvoo and Naantali refineries Retail stations Shipping activities Fortum Markets (oil customers) Nynäs JV SeverTek JV Certain other oil related assets/ activities

34 Customer value management developing position as the supplier of choice Productivity 2004 onwards: Becoming a significant profit contributor and driver of customer value management : Turnaround Development of superior customer insight Introduction of new, differentiated offerings Development of common customer interface Customer orientation 34

35 Continued focus on operational excellence Strong track record on improving operational efficiency Continuous improvement targeted More efficient customer interface management Increased operational efficiency in distribution Improved purchasing cost efficiency Improved cost efficiency and flexibility in IT infrastructure development 35

36 Potential to excel Structures in place Well performing businesses Strong cash flow Well prepared for market changes New opportunities by separating and listing the oil business Strong confidence in the future 36

37 Disclaimer This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Fortum shares. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser. 37